Cities being hard hit by foreclosures

Rate is as high as 4 percent in California

August 24, 2007|By Tony Pugh, McClatchy/Tribune Newspapers

WASHINGTON — A central California agricultural town, the automobile capital of the world and a down-on-its-luck gambling hotspot had the nation's highest rates of foreclosure filings for the first half of 2007, according to newly released real estate data.

Stockton, Calif., Detroit and Las Vegas -- three areas with vastly different economies and demographic trends -- have all been hit hard by the nation's growing foreclosure crisis, which is ravaging both major urban areas and Middle America.

Averaging one foreclosure filing for every 27 households during the first six months of 2007, Stockton had the highest filing rate among the 100 largest metro areas of the United States, according to RealtyTrac, a real estate data firm.

Located in the heart of California's famous Central Valley, where tomatoes, almonds, apricots, grapes and cotton are grown, Stockton and the surrounding area have become a respite for Bay Area and Southern California residents seeking cheaper housing costs.

In the Stockton metro area of San Joaquin County, foreclosure filings were made on 4,239 properties -- more than double the number of the previous six months and more than three times that in the first six months of 2006, RealtyTrac reported.

Placing second with a rate of one filing for every 29 households was Detroit, where job losses in the auto industry have wreaked havoc on the local economy and housing market.

Las Vegas had the third-highest rate, with one foreclosure filing for every 31 households, as a glut of new homes and condominiums and a rash of speculative buyers walking away from properties continued to drive down home values despite the area's record population growth.

The nation's foreclosure crisis is being driven by home buyers with shaky credit who took out subprime loans. Many of these borrowers are now unable to make the higher mortgage payments required after the rates on their adjustable-rate loans reset.

The ripple effect has caused several mortgage companies to fail, others to stop providing subprime loans and many more to tighten lending standards on all loans.

The percentage of subprime, adjustable-rate mortgages in foreclosure jumped to 3.23 percent in the first quarter of 2007. Compounding the foreclosure problems are predatory loans, mortgage fraud and speculative homebuyers with properties whose values have fallen below their purchase prices, leaving owners unable to sell them for a quick profit.

"At one time, you basically could put a small down payment on a condo, take ownership before it was even built and sell it a few months later at a significant profit, and people were doing that.

This led to a glut of construction and now an excess of condo properties," said Sean Snaid, director of the Institute for Economic Competitiveness at the University of Central Florida in Orlando.

The subprime loan problem has caused massive swings in the U.S. stock market, leading the Fed to add billions of dollars to the banking system $ to shore up investor confidence.